Adam Smith's Lost Legacy

GavinK9 AT gmail DOT com

Monday, July 31, 2006

Happiness is Relative

There is a spate of articles, conference papers, journals, pod-casts and journalistic pieces appearing on the subject of ‘happiness’; what it is, how it’s measured and what you have to do to enjoy it. I cannot claim to have been following the debate all that closely (I am inclined to the view that ‘one man’s happiness is someone else’s misery’ – I cannot speak for how women see happiness, so using ‘person’ is not appropriate in this case).

However, I came across this paragraph in an article by Mark Vernon (author of The Philosophy of Friendship - Palgrave Macmillan) in The Guardian (London) July 31, 2006:

“More than a pleasure: The popular idea of happiness as hedonistic is misleading - the good life can't be purchased”

“Adam Smith reluctantly concluded that commercial society did not require people to live good lives, only cooperative ones. He understood the real challenge: unless we are prepared morally to challenge the commercialism and consumerism that shape society, we will not achieve much in terms of increasing the happiness of the affluent west”

CommentFrankly, I know not what Mark is talking about in respect of Adam Smith. ‘Reluctantly concluded’? Where on earth did that idea come from?

‘Good lives’ are better than ‘co-operative lives’? Who made this judgement? Though the idea of being 'good' and not 'co-operating' with fellow humans strikes me as odd, but Smith did point out we do not have to love others to engage in the 'mercenary exchange of good offices' in Moral Sentiments.

Who said the ‘real challenge’ (by whom inflicted on who?) is that ‘we’ must ‘morally challenge’ ‘commercialism and consumerism’? Those who want to do that can divest themselves of everything they have and emigrate to any of a few score of countries in Africa, the near east and elsewhere, and take up the ‘challenge’ they feel 'we' must be ‘prepared’ to accept without access to ‘commercialism and consumerism’.

How Adam Smith got into the act, I do not know. He had reservations about a lot of things in the changing society of mid-18th century Scotland and knew enough about the dreadful poverty of many people in Scotland, whose lives were spent desperately challenging every day the absence of ‘commercialism and consumerism’ in their lives. Despite reservations – he was an educated gentleman, comfortably well-off from his pension (though he gave much of it away to indigent relatives; the rest he spent on his library) – he saw the commercial age as a means to the relief of the burdens of the absence of what he called ‘opulence’ for the vast majority of the people of Europe and elsewhere. Those dissatisfied with their lives – and I suggest that this is an unchanging feature of human lives since way back – divide into two: those who desperately want a share of the fruits of commercialism consumerism and those who having got their shares of these fruits forget, or, being second or third generation beneficiaries, cannot imagine what the absence of these fruits would mean to them and those around them. But being of the pontificating kind, they think others should share their misery from their affluence by listening to their sermonising, which does not include them volunteering to divest themselves of what they have, at least just yet.

Sunday, July 30, 2006

No Need to Pander to Carlyle's Racism

John Quiggin (‘commentary on Australia & World Events from a Social-Democratic Perspective’) discusses the origins of the ‘dismal science’ appellation to economics by Carlyle in his defence – indeed, celebration – of slavery:“And while I was aware that Carlyle was (correctly) viewed by Fascists as a precursor of their ideas, and that his works were among Hitler’s favorite reading, I hadn’t derived the obvious corollary that his reputation would be revived and his work celebrated by postmodernists in the late 20th century.

Anyway, despite learning that it’s etymologically incorrect, I’m going to focus on the standard view of Malthusianism as the ‘dismal’ version of economics, and make the point that, if economists are generally hopeful about the possibility of combining economic progress with environmental sustainability, it’s in part because we have learned from our own 19th century mistakes."CommentWhile welcome for his exposure of Carlyle’s racism, John Quiggan’s decision to continue to use Carlyle’s nauseous appellation is regrettable. Even using it to describe ‘Malthusian’ economics as ‘dismal’ begs a few questions, as Sandra Peart has pointed out on her blog in reference to misinterpretations of Malthus:

“One niggling detail has to be corrected: So obvious, apparently, it was treated as a throw away line. What? Rwanda. The Rwandan genocide was said to be the fulfillment of Malthus's predictions. Really? It seems to me that Malthus argued the opposite. For Malthus, institutional arrangements matter: with secure property rights, people could foresee the consequences of their decisions and they would limit family size. So, crowding (conflict and death) would not be the result for Malthus because people would resort instead to the preventative check to limit births. David Levy and I have tried to correct this still-widespread misconception of Malthus in our columns at Econlib. Part 2 is called "Happiness, Progess, and the 'Vanity of the Philosopher'". [http://adamsmithlives.blogs.com/thoughts/2006/03/index.html]Would it not be better for John and others to publicise these facts rather than perpetuate the myths that have grown up around them?

Surely we can write about economics without being so defensive in deference to a racist bigot’s turn of phrase and so inept to be less than positive about economics as a science and not a journalistic cliché?

Saturday, July 29, 2006

Adam Smith on the Origins of Government

A contributor to News Blaze (‘Support our troops, Read their stories’) discusses ideas about Maoist socialism and western capitalism, in a clear example of American free speech, somewhat at odds with the usual image of writers in military magazines. I comment on a couple of extracts (Google News Blaze for the URL, as mine came via an agency without the details).

‘Maoism or Capitalism From Economic Perspectives’ by Kamala Sarup (in News Blaze’, Folsom, California, USA).‘What I also understand is that "capitalism" is not an economic system so much as recognition of a fundamental reality: it is the accumulation of "capital" which allows investment, which allows creation.

That such efforts normally fail is simple. That is, it proves very difficult to tell people to "be free" in certain areas but not in others. Sooner or later, they start crossing the regime's red lines!

On the other side I want to argue like here's an Adam Smith quote in it I used. Smith said "civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor." Smith would have railed against giant corporations if he were alive today. They plunder the world and we fight wars for them like in Iraq.’CommentTaking a quotation out of context can always cause misunderstandings. It does so in this case. Smith was not outlining the appropriate policies for civil governments for all time and in no sense did he suggest that the appropriate role of government in modern societies was to suppress the poor. Quite the reverse! His entire approach to modern government was for it to cease intervening on behalf of special interests to enrich themselves at the expense of consumers, the majority of whom were among the poor. He saw commercial society as a road to opulence that would spread its benefits to the family of common labourers.

His lectures on jurisprudence, delivered at the University of Glasgow between 1751-1764, show his historical approach to the evolution of modern societies through four stages, each comprising a different mode of production. He began with what his contemporaries called ‘Rude’ society, the closest analogy of which were commonly described as represented by the North American ‘Indians’, as reported by travellers in the 17th-18th centuries, and in Africa and the Pacific.

In contrast to the common labourer in Scotland, by modern standards a class of people living in poverty compared to the lives of the gentry, landlords and princes of Britain, they compared well with the ‘chiefs’ and ‘kings’ at the head of the ‘savage’ nations of America and Africa. Indeed, Smith pointed out that the difference in living standards between the rich and poor in Britain was not as great as the difference in living standards between the common poor in Britain and the ‘richest’ chief in America, who ruled the lives of thousands of his people.

It is important to realise that Smith did not ascribe these differences in relative living standards to any kind of racial cause; the differences arose solely because of the relatively advanced state of the division of labour between the two modes of production. The ‘Americans’ (and Africans) were hunters; the Scottish poor were farmers and day-labourers, living in shepherding, agricultural and commercial societies that had developed from when all Europeans had lived in the first age of man – hunting and gathering. It was John Locke (1690) who said that ‘in the beginning all the world was America’. And so it was. Every human society had started in the Hunting stage as ‘savages’, just as our distant ancestors all came from Africa.

With extremely low population densities, hominids migrated out of Africa from about a million years ago (and became extinct), followed by humans about 200,000 years ago. There was no need for ‘governments’ as we understand them. People were ‘free’ of coercion, except within the families and bands, but ‘enjoyed’ extremely low living standards, first as gatherers (in common with our cousins, the primates), then as gatherer-scavengers (stone tools, primitive co-operators) and then as gatherer-hunters, the remnants of which occupied North and South America (but not Central America), sub-Saharan Africa, South Asia, Pacific Islands, and Australia.

Meanwhile, and separately, human societies in India, China, north and central Asia, and Europe went from savagery (hunting), through shepherding, then agriculture and lastly, commerce, some societies ‘stopping’ at particular stages (shepherding in central Asia and Arabia, North Africa), others reaching the commercial stages, and then reverting under barbarian invasions (Persia, Greece, Egypt, Rome, western Europe) to agriculture with the destruction of commerce. Meanwhile, China and India's civilisations stagnated under institutional inertia.

Crucially, Smith highlighted the increasing role of laws as each society developed through the four stages. With hunting and gathering, laws were few, and were settled within families; with shepherding, law were enforced by those who possessed flocks and herds (poachers were killed); and with agriculture and settlements, laws were devised and enforced by the first governments, mainly in defence of property. People who grew crops protected them against theft by those who had none. No stable society can last for long if property in agriculture is insecure. That was the main role of civil government as it settled disputes and adjudicated between disputants. Shepherds defended their flocks and herds by rewarding individuals without them with subsistence; farmers defended their fields by rewarding landless labourers in the same manner.

Commerce grew slowly, from the continuing division of labour – surplus food exchanged for manufactured products in bargaining – with contracts enforced by civil government. The relapse from Roman ‘civilisation’ (a fairly barbaric world too) into warlords and feudalism, lasted a thousand years until commerce revived in the 15th-16th centuries. Smith’s Lectures in Jurisprudence (1763-4) trace this entire period from Classical Greece-Rome to 18th-century Britain, and also trace the growth of Liberty within ‘modern’ society as absolutist Feudal monarchy gave way to the rule of law, Habeas Corpus, trial by Juries, independence of the judiciary, emasculation of the powers of the monarch, parliamentary ‘elections’ and freedom of contracting.

Now, in this context, only sketched in the thinnest of outlines above, Smith’s statement about government protecting the possessors of property against those without any (except in the property of their labour) is a different message than the one bluntly quoted by Kamal Sarup.

Wrong Twice In One Paragraph

Here is an example of someone crediting Smith with something he did not invent, nor claim that he did, and at the same time crediting somebody else with something Smith did write 90 years before. This comes from dim memories of Economics 101 or an edition of 'Bluff Your Way Through Classical Economics'. Either way it is poor journalism."Water of life" in The Telegraph (London) 29 July'It was Adam Smith who spotted the paradox. "Nothing is more useful than water; but it will purchase scarce anything." Neo-classical economists developed his argument, noting that a man wandering the desert with a sack of diamonds would gladly exchange them all for a jug of water. Now, in a sweltering Tube carriage, their theory has come to life. "Mugged for a 40p bottle of water", said the headlines. To which our first reaction is, of course, shocked disbelief. Only 40p for a bottle of water?'

CommentOf the many contributions that Adam Smith made to political economy, moral philosophy and jurisprudence, the ‘paradox of value’, he illustrated with water and diamonds, was not original to him and he was not the first to spot this paradox by millennia: cf: Plato (Euthydemus 304B).

As a student in Glasgow College (university) between 1737-40, he attended Francis Hutcheson’s lectures, which included the economics of the water-diamond paradox, and he read of the paradox in Samuel Pufendorf (De Jure Naturae et Gentium, 1672), a standard text in the moral philosophy class. Bernard Mandeville (Fable of the Bees, 1724) also includes the paradox of price and utility as affected by scarcity and plenty. And Ricard Cantillon mentions something similar about a pitcher of water from the Seine in Paris costing nothing, but the labour of collecting costing a sous (Essai Sur La Nature du Commerce in General, 1734). John Law, Money and Trade Considered, 1705, noted the water-diamond paradox.

Neo-classical economists who developed the water-diamond paradox had the benefit of marginal utility theory (1870s), but they were not original in noting how a thirsty man in a desert would pay much more for a glass of water than a professor in Glasgow walking to class through the rain.

This was one of Smith’s illustrations in his lectures in 1752-64, in which he tells the story of a merchant in the ‘deserts of Arabia’ who gave ’10,000 crowns for one cruise of water’ (Smith, Lectures in Jurisprudence, 5 April, 1763: Liberty Fund, 1982: p 358; a version in Lecture ‘B’, edited by Edwin Cannan, was available from 1895, and the Lecture ‘A’ series from 1958).

Friday, July 28, 2006

Smith's Epigones Strike Again

The more I read about Adam Smith in the US media, the more I realise the price that his reputation pays for the legacy given to him by his epigones that is often the exact reverse of what Smith himself wrote.

The damage done to his true legacy knows no bounds; often the exact opposite of what he said is thrown about, sanctioned by the misuse of his name, as if it’s a mere brand. ‘Chicago Smith’ is an enduring libel on the ‘Kirkcaldy Smith’ from our friends at the University of Chicago, whose graduates spread all over the country, induct generations of students in false ideas and nostrums, which they repeat thoughtlessly, never bothering to read his books for themselves.

I often write, politely, to such individuals suggesting their statements are ‘problematic’ – a scholarly way of saying your ideas about Smith are unfounded in fact – and sometimes I receive an acknowledgement and a ‘thank you’; mostly there is silence.

Take this tendentious piece from Alternet.org (‘the mix is the message’) by Barry C. Lynn, originally in Harpers. Barry is a senior fellow at the New America Foundation (www.newamerica.net) and is one of the ‘exceptionally promising new voices’ bringing ‘new ideas to the fore of our nation's public discourse.’

Well, for Barry, I recommend a short induction into the real Adam Smith. Barry writes:

“There is an undeniable beauty to laissez-faire theory, with its promise that by struggling against one another, by grasping and elbowing and shouting and shoving, we create efficiency and satisfaction and progress for all. This concept has shaped, at the most fundamental levels, how we understand and engineer our basic freedoms -- economic, political, and moral. Until recently, however, most politicians and economists accepted that freedom within the marketplace had to be limited, at least to some degree, by rules designed to ensure general economic and social outcomes.From Adam Smith onward, almost all the great preachers of laissez-faire were tempered by a strain of deep realism. Most accepted that a national economy ultimately served a nation that had to survive in an often brutal world. So, too, did most accept that all economies are characterized by struggles for power and precedence among men and institutions run by men; in other words, that all economies are fundamentally political in nature. And so most accepted the need to use the power of the state -- most dramatically in the form of antitrust law -- to prevent any one man or firm from consolidating so much power as to throw off basic balances. The invisible hand of the marketplace, and all that derives from it, had to be protected by the visible hand of government.”CommentThis introductory paragraph fronts an article entitled: “The Case for Breaking Up Wal-Mart”. Now, I have absolutely nothing to say about Wal-Mart because I know little, if anything, about it. My objection is not to Barry’s case against Wal-Mart – there is a judicial system in the US to deal with such matters – but to his dragging Adam Smith into the case from an entirely incorrect perspective. If he were to repeat his libel, innocently I am sure, under oath, he would make Smith an ‘accessory after the fact’.

For a start, Smith did not advocate laissez-faire – he never used the words in all of the million words he published and as many more he spoke in his lectures in Edinburgh and Glasgow between 1748-1764 (plus untold others in his private conversations – that we know of). This absence of use of the words or the concepts came after he met the French Physiocrats in 1764-6, some of whom were believers in laissez faire. Now, this is strange because if Smith was, as Barry claims, one “the great preachers of laissez-faire”, it should be possible for him to refer to where he indicated such an affiliation. Unfortunately, he can’t.

Even stranger, Barry asserts that Smith was associated with laissez-faire advocacy that promised “that by struggling against one another, by grasping and elbowing and shouting and shoving, we create efficiency and satisfaction and progress for all.” This is the heart of Barry’s libel against Adam Smith, for in ‘The Theory of Moral Sentiments’ (1759; 6th edition 1789) Smith wrote, in defiance of the above sort of nonsense:

‘In the race for wealth, and honours, and preferments, he may run as hard and fast as he can, and strain every nerve and muscle, in order to outstrip all his competitors. But if he should justle, or throw down any of them, the indulgence of the spectators is entirely at an end. It is a violation of fair play, which they cannot admit of.’ (TMS II.ii.2.2: p 83)

The guarantee of ‘efficiency and satisfaction for all’ came not from the ‘grasping and elbowing and shouting and shoving’, as Barry would have it, but from competition, from remembering that the consumer is more important than the producer, and from the rule of law and the sanction of justice. Smith called this ‘perfect liberty’, but it was not the liberty to collude and conspire against the public interest, to raise prices to make monopoly profits, and to restrict supplies. In short, Smith stood for the exact opposite of Barry’s mirage about him.

Lastly, Barry’s last sentence that: “The invisible hand of the marketplace, and all that derives from it, had to be protected by the visible hand of government.”

Please, Barry, read Smith on markets (Book I, Wealth of Nations). He says nothing about invisible hands in relation to markets or in Book V about visible hands of governments. The invisible hand, a lone metaphor, is a single sentence in Wealth of Nations (p 456) and one only in Moral Sentiments (p 184), and in neither case was he talking about markets. That is a transposition located in the environs of Chicago that changed an idle metaphor (originally from Shakespeare in Macbeth in 1605, and from Defoe in Moll Flanders, 1722) about people’s motivations, some of which had benign outcomes (raised economic growth) and some of which had malign outcomes (monopoly).

Behaviour does not automatically ‘create efficiency and satisfaction and progress for all’ – it can create the nightmare of hell too, which recognisably is laissez faire’s weakness as a policy.

For the rest of the lesson in what Smith actually wrote about read his books, read this Blog regularly, or read “Adam Smith’s Lost Legacy”, Palgrave Macmillan, 2005.

A Noisy Radical Shouts Louder that Lew Rockwell

In stark contrast to Lew Rockwell’s (Alabama) trenchant critique of fiat money, my next alert to mention Adam Smith was, well, a rant from a really angry man, Joe Bageant (California), or perhaps, that’s just his writing style when he is in bad mood.

Bageant, like Rockwell, prefers a gold standard. He too has a radical critique of US society, every aspect of which, in his case, is a target for abrasive language and abuse (both apear to be Libertarians). He concludes that “an American makeover ... will cost, at the minimum, maybe ten trillion dollars over at least two or three generations.” Meanwhile, the rest of the world will watch and wait while the US cuts itself off from them. Bageant does not like Malaysians working on Dell computers for 1,000 calories a day – has he been to Malaysia recently?

However, in the interests of even handedness – an irrepressible though boring virtue of a life in academe – I extract a couple of paragraphs which portray an unrecognisable Adam Smith (which editions of Moral Sentiments and Wealth of Nations did Bageant read? - his quotations certainly were not in any edition I have read).

I quote from “Dissident Voice” (www.dissidentvoice.org), 'A Radical Newsletter in the Struggle for Peace and Social Justice':

“Adam Smith Meets Cousin Ronnie's Boy

Conservatives, on the other hand, entertain no illusions about computers in the schools or anything else. Instead, they stick by the bootstrap myth, and free marketism as the course to personal and national success. We have over 200 years of evidence strongly suggesting that America's favorite theological premise, Adam Smith's “unseen hand,” like the gravity defying bootstrap theory, is a sorry thing indeed for any sane person to hang his ass on, given that both are endorsed chiefly by the smuggest, the greediest and richest among us. Most working folks would simply prefer an even start -- a fair break for everyone without depending on bootstraps or unseen hand theology crafted by a man who offered that the self-interested pursuit of money somehow made men more altruistic. Despite modern apologists' assertions to the contrary, Smith also believed the unseen hand was actually that of God, “whose wisdom works itself through competition for wealth,” and that “providence rightly divided the earth among a few lordly masters.” He disliked government except when it was clubbing down "the vice ridden and slothful poor." Property is government, he said, and “Till there be property there can be no government, the very end of which is to secure wealth, and to defend the rich from the poor,” thereby writing the Republican Party platform a full 89 years before the party was even born. Even allowing for the times, the guy was a bloodless prick. But then, so was Ronald Reagan, yet we are forced to suffer a similar deification of his addled free market cowboyisms. Feel free to hold your head and scream.

...In any case, Adam Smith lived in a time when money was described in terms of its effect on human beings, breathing entities who encountered one another on the streets even as chamber pots of both the rich and the poor were being emptied in the gutters in plain sight of all. He lived in what cyberheads now call “meatspace”, a place where most of the things that governed life were out in the open and fairly obvious. Money simply meant gold. Now money consists of digits coursing through the telecommunications satellites of a global financial system that manages teeming humanity for its own perpetuation, hollowing out the common classes in a new financialized feudalism, although preserving a smaller carriage class necessary to administrate and preserve the system for a handful of unseen global lords in New York, Zurich and Beijing. Calculating bastard that Smith was, I doubt he would much like what we have today.”

CommentI consider replying to the diatribe against Adam Smith not worth the effort. If you read Joe’s piece and find his assessment of Smith believable there is nothing I can say that would change your perspective (you would believe anything, it seems); and if you find his assessments, well, silly in a rhetorical sense, you do not need my comments.

Forward to a Gold Standard?

Is there a case for returning to a gold standard – paper money exchangeable for gold?Well, it is an age-old debate among monetary economists and one most economists avoid (often smiling indulgently of those minded to ask about it).

Llewellyn H. Rockwell, Jr, in Goldseek.com, writes ‘The Case for the Barbarous Relic’ (as Keynes called it). Some extracts follow that caught my eye:“The greatest mystery in the history of economic theory, and still the most unresolved controversy in the economics profession, is the nature and source of the business cycle. Why do recessions occur and why do booms occur? Why do they tend to follow each other with some degree of regularity?

Solving the mystery of the business cycle is a different task than confronted Adam Smith and the classical economists. They sought to answer the question of how economies grow. They concluded that free exchange and capital accumulation are the sources. But the mystery of the business deals with a far more complex problem of why growth seems to occur intermittently. This is a question that only began to absorb economists in the middle of the last century.

Part of the reason is that business cycles simply didn't exist in the prior centuries. We get a clue to the ultimate resolution of this problem by noting that central banks didn't exist before business cycles began to be noticed. But it took economists a very long time before they put two and two together to understand that it is the activities of the central bank itself that brings about the trade cycle.”

CommentSmith was concerned with growth – in fact, his most famous book is a report of his inquiry into the nature and causes of the wealth (the annual produce) of nations. He saw the main economic problem facing Britain in the mid-18th century as how to arrange the nation’s affairs in the manner most likely to progress the spread of opulence.

The poor and the very poor were in dire straits and the growth in per capita income, while positive, was slower that it needed to be. He analysed the workings of the economy in the context of its political management and found that many policies, institutional practices and personal ambitions of legislators and landlords (Britain was an agricultural economy, about 50-50 in the distribution of population) inhibited growth.

Smith’s history of money followed the same lines of other authors (Steuart, Cantillon, Turgot, for example) and he did not find anything remarkable about the evolution of gold and silver into currency. The Bank of England was a private outsourced bank at first, run to manage government debt. Britain’s armed forces (army and navy) were massive institutions – the Royal Navy employed 200,000 men at the turn of the century – and personnel were major costs. So were the bribes and subsidies paid to foreign rulers to keep them ‘on side’ during the European wars.

It was later that the central banks emerged as state-managed institutions with a monopoly of the creation or money. And it is from this perspective that Rockwell writes his trenchant piece. For a quick overview of the gold case, search for goldseek.com

Thursday, July 27, 2006

The Prescient Voice of a Leading African Politician?

Yoweri Museveni , the leading politician in Uganda, addressed a ‘retreat’ of his colleagues in government and expounded on a perspective of world history that is sober reading for westerners, especially those of the ‘soft’ liberal variety, who see the West’s role as the solution to problems of under-development.

His speech is too long to quote here but should be read by all those with ‘solutions’ for under-development. You should Google “The New Vision” (Uganda’s Leading Web site) for 26 July, and read how a leading African politician interprets recent history and offers his predictions for the future. Briefly, the future is not Western.

My interests were sparked by the following:

“The Europeans, following the Renaissance, faced the same problem. The crucial ingredients that would propel the European society forward were the economic theories that were evolved by various European philosophers. Some bullionists, such as Thomas Milles (1550-1627) and Gerard de Malynes (1586-1641), believed in an economic theory that defined wealth by the amount of precious metals owned by a country. The Physiocrats, like Richard Cantillon, on the other hand, who were based in France, said that agricultural production was the source of all wealth.

However, the classical economists, such as Adam Smith, correctly pointed out that the correct way forward was specialisation, division of labour and industrialisation. Adam Smith gave the example of manufacturing a pin. He pointed out that that process was broken up into 36 parts. By one person just specialising in one part, the process was very efficient. There were the mercantalists who went abroad, partly robbed, partly traded and made profits from the 16th to 18th Century. They believed that a nation’s wealth came primarily from the accumulation of gold and silver. Nations without mines could obtain gold and silver only by exporting more goods than they would import from abroad and it was a modified form of Bullionism. Later on Karl Marx castigated private property saying that “it is the source of all evil” and predicted the abolition of private property. These ideological meanderings (like the children of Israel wandering in the desert) caused stagnation, disorientation and tremendous damage to human societies: wars, genocide, slave-trade, colonialism, etc. Yet it is now clear that all this was unnecessary. It is clear that through industrialisation and free trade human societies, provided they are optimally organised, can maximize their welfare. Sweden or Norway did not, in recent centuries, participate in colonialism, slave trade and genocide abroad like England, France, Spain, Portugal, etc did. Yet they are very prosperous today through industrialisation and trade.”

CommentAs a potted history it is fair enough.

Dr Museveni has read some theory from the history of economics and I note his particular points about the mercantile theorists and, interestingly, Richard Cantillon.

There are the odd minor errors. Smith’s reference to Diderot’s Pin Factory identified 18 operations not 36; he did not identify ‘industrialisation’ as a ‘way forward’ because such a concept had not been conceived by him or his contemporaries – he lived in mid-18th century Britain which was 100 years away from industrialisation. The machines Smith spoke of were wooden machines with occasional metal appendages, and were operated manually and were not power driven (incidentally, Diderot’s Encyclopaedia (1755) contained many illustrations of tools and implements of the kind that Smith wrote about).

By the time that Karl Marx was writing, ‘industrialisation’ was visibly present, with its large factories, steam powered machinery, new technologies (electricity on the horizon) and large markets, though Marx got it magnificently wrong in his predictions.

Interesting that Museveni remarks on the difficulties of land-locked African countries – blaming colonialism for their creation – but contrasts the national policies of Norway and Sweden, with their comparatively small populations, and those of ‘England’, France, Spain and Germany and their colonial histories, the first three of which with Portugal, mostly maritime powers (Germany was a late 19th century nation-state). The low-populated Scandinavian countries are often compared favourably in many aspects of their policies with the large-populated developed countries as if there is no connection between managing societies and the number of people they manage. Africa’s larger countries already show different social problems in scale than some of the smaller ones (though Uganda’s recent history shows to what depths any country can descend when ran by a megalomaniac like Idi Amin).

However, I recommend that you read the speech for an insight into the considered views of an important figure African politics.[If you cannot find the speech via Google, send me an email (gavin/at/adamsmithslostlegacy//dot/com) and I shall pass a copy to you]

Tuesday, July 25, 2006

Fanatics' Foundations Founded on Nonsense

More nonsense from the political axe grinders with a smattering of knowledge about Adam Smith, plus an overload of certainty about what's wrong with the world. As someone once said, 'I wish I was as certain about one thing as these fanatrics are so certain about every thing.'

“Adam Smith, the father of modern economics”, pleaded for leaving all economic activities to be regulated by market forces without any restraint from state or any other organized group. He believed, “the invisible hand” would coordinate them and run them without any violent ups and downs."

CommentThis is the lead-in paragraph to a tendentious article attacking the drift to private police protection services, and, in passing ,private education establishments. The quality of its arguments does not rise above the patent nonsense of this first paragraph in regard of Adam Smith.

Errors:

1 “Adam Smith, the father of modern economics” – a cliché of lazy economists who have not read Smith’s works and confuse quotations attributed to him with modern economics – a sub-branch of applied mathematics – that ignores people and reduces complex behaviours to only one (so-called self interest), it being easier to manipulate mathematical functions, and erects an entirely false image of Smith (the ‘Chicago’ Smith) in contrast to the real Smith (the ‘Kirkcaldy’ Smith). Smith’s legacy, with few exceptions, is at variance with what is said in his name.

2 “…pleaded for leaving all economic activities to be regulated by market forces without any restraint from state or any other organized group.”

It was not in Smith’s style to ‘plead’ for or against any particular policy. The Wealth of Nations was a report of his 12-year ‘inquiry in the nature and causes of the wealth of nations’. It was not a manifesto in support of a change in the way society was run. He pointed out the consequences of running it the way governments tended to legislate.

He was not an anarchist or libertarian, as any number of modern libertarians will tell you (see Murray Rothbard for a particularly bad tempered denunciation of Adam Smith for his manifest failings to descend to the temper of a fanatic about how society works). He accepted certain stabilising aspects of ‘modern’ 18th century society. He did not believe it was practical to change everything before you could change anything. He dealt with the world as it was by contrasting it with the way it could be; change the causes and you changed the consequences, but nothing would change if everything had to change simultaneously. The fanatic – ‘the man of system’, he called him – was ‘very wise in his own conceit’, which describes Rothbard’s polemical style accurately.

Smith was not against state intervention. Justice was administered by the judiciary, an arm of the state, and was essential to individual freedom. Defence was the ‘first duty of government’. Markets were a preferred choice where they worked; he was not against state-funded activities and he left the decision on whether they were administered by state commissioners or private contractors to a pragmatic test: which worked most efficiently, not to an ideological test for or against the decision.

Smith was not a laissez-faire philosopher; he never used the word, yet was familiar with its concepts and with its exponents among the Physiocrats. He did not believe that ‘merchants and manufacturers’ could be free of ‘all restraints’ on their behaviours – most rapidly turned into ‘monopolists’ when left alone. That did not mean he favoured state intervention, unrestrained by laws of justice.

4 “He believed, “the invisible hand” would coordinate them [‘market forces’] and run them without any violent ups and downs.”

Here, Girish Mishra is setting up a straw man for an easy knock down. The so-called invisible hand was a lone metaphor he used once in Wealth of Nations (and once in Moral Sentiments), and in neither case was he talking about markets. That is a conflation from Chicago trained economists. He was talking of the unintended consequences of individual motivations. He also wrote of many counter examples where the outcomes of individual actions had malign, not benign, consequences.

The power of Smithian markets is not based on something outside them (visible or invisible) ‘co-ordinating’ them. That is precisely his point about the relationship between ‘natural’ and ‘market’ prices – markets are self-regulating and their workings are well understood. Nobody designed markets, nor ordered them into existence, nor foresaw their utility. They evolved socially over many millennia from the ‘necessary consequence of the faculties of reason and speech’ (long before markets took monetary forms). What Mishra means by ‘violent ups and downs’ is not clear, but markets can move ‘violently’ on occasion dues to external events – Smith’s example is of the dramatic rise in the price of black cloth when there is a general mourning in the UK (presumably white cloth in some countries).

Mishra’s line on private police forces and private schools is predictable after his straw man Adam Smith is presented. Briefly, he blames the failings of the publicly funded state schools on the middle-class who send their children to private schools, where, presumably they are more successful (otherwise the parents would not spend their money on fees). But what this conclusion leads to is the policy that the failing state schools should continue to be funded by taxes (i.e., subsidising failure) and the successful private schools should be closed down or taxed out of existence; a prime example of using economic powers to coerce people to continue to endure failure.

It would be better to use state funding to hand the power of decision to parents by issuing vouchers to spend on schools that succeed and let failing schools wither away (as recommended for years by the Adam Smith Institute). Use the power of free markets to punish failure and reward success, not use the power of a coercive state to punish success and reward failure.

Monday, July 24, 2006

A Small Injection Into the Ailing French Economy

Apologies for no Blog posts since Friday, but this week-end was devoted to the wedding of my youngest daughter, an event that must have injected a fair sum into the French economy because 148 people attended, most of whom travelled from Scotland (plus two families from Australia and the United States and several from other European countries, including, of course, France).

Weddings take time to be planned, organised, administered and delivered, especially when they are a three-day party in rural France. They also provide an insight into the French administration of civil marriages, in this case in the offices of the Marie (the mayor) of a small commune, near Bordeaux. The amount of form filling is normal for anything that requires official sanction in France (after 17 years, I am beginning to understand French administrative 'logic' -a 'law' unto itself), complicated by the necessity to have everything interpreted (by officially appointed translators in Edinburgh) and affirmed as accurate and true by the British Consulate’s offices in Edinburgh and Paris.

The Marie of the Commune, complete with the red, white and blue tricolour sash, and with the proceedings overlooked by a bust of ‘Marianne’, the symbol of the Republic, and a large photo of the President Chirac of France, conducted the exchange of affirmations, and allowed the couple to exchange their wedding vows and rings.

So, colleagues, I have been particularly busy this weekend and I refrained from announcing beforehand the interlude in my Blogging on the grounds that I did not wish to tempt fate and, frankly, my attention was focussed elsewhere.

Friday, July 21, 2006

Listen more to the Little People, less to Big Governments

The development debate continues, but some local initiatives contribute more light on the resolution of the issues in contention than the 'debate' at the high levels of abstraction common among the participants associated with the 'big donors' and 'big recipients' .

From the psdblog:

"Cookie-cutter approach to social enterpriseTwo years ago, [Alicia] Polak founded The Khayelitsha Cookie Co., which now employs 11 women from the sprawling shantytown to bake high-end cookies and brownies that are distributed to top hotels, restaurants and coffeehouses throughout South Africa. The cookies come packed in plastic with a cartoon on the front showing a big, African 'mama' in traditional dress and the company slogan: "Creating opportunity one bite at a time."For Polak, the entrepreneurial venture is about making money, but also much more. "My driving force in this company is that I want them out of those shacks," says Polak of the hundreds of thousands of people living in poverty in South African townships. "I want to help change their lives using this company as the vehicle." For more information on this project see:http://psdblog.worldbank.org/psdblog/2006/07/a_cookiecutter_.html

"The goal of the Wharton initiative is to:

Move philanthropy away from dependence on charitable donations to projects that can sustain themselves financially over the long term. "What you set in motion is a virtuous cycle," [Ian McMillan] explains. "The more money you make, the more people are helped. The more people who are helped, the more money the entrepreneur makes." He also points out that entrepreneurs can be successful in developing economies on very little profit. "What looks to be not much profit in the eyes of a U.S. entrepreneur is a lot of money in those countries. They're much happier with a smaller profit."

Smith’s own country, Britain, in the mid-18th century had a fair degree of corruption it should be remembered and this afflicted the very top of society. Some of this corruption was embedded in government and some in finance - the South Sea Company in the early part of the century was followed throughout the century by the machinations of the East India Company. So it is not a case of modern moral superiority.

Despite the corruption at the top (just don’t feed it!) it is what happens on the ground that counts for societal development. It is the small time, individualistic, entrepreneurial activities of thousands of people who never receive ‘aid’ from abroad, but who put together, despite all the difficulties of corrupt local officials, the courts and police or other armed bands (sometimes misnamed as ‘armies’), little profit- making schemes of buying and selling, transporting and distributing, often at low levels of profit per item, that gradually, slowly but steadily, open the road to development.

The example Smith made of Diderot’s pin-factory has gone round the world several times a day and that employed only 18 persons (the less famous pin factory he visited employed only 10 persons). These were not large technologically driven enterprises favoured by local governments (more chances to steal) and by big donors and lenders (more quickly gets headlines that western politicians are ‘doing something’). It is myriads of little enterprises that raise a country to wealth creation. The big concerns will come in time, but the bedrock of development is the small enterprise, run by ‘market mamas’, mothers, (occasionally) their men folk and their kids. The examples above are perfectly consistent with the Smith’s inquiry, as reported in Wealth of Nations. Check the references, read Smith on capital formation and development, and draw your own conclusions.

Thursday, July 20, 2006

Division of Labour is Ubiquitous

“Adam Smith wrote that "the greatest improvement in the productive powers of labour seem to have been the effects of the division of labour." Through the eighteenth, nineteenth and twentieth centuries, productivity in the economy increased rapidly as companies grew larger and workers' jobs became more specialised, but in recent years the trend has been going the opposite way. Often encouraged by opportunities afforded by the internet, the number of small business start-ups has been growing rapidly. More than half a million are now set up each year, with over four million in the UK, employing around 58 per cent of the private sector workforce. When you help start a company there is little or no division of labour; often you have to do almost everything yourself. Last year I left a large City financial services company to help start a new business providing information to the markets.”

From: “Expect the unexpected and learn to be flexible” by Tom Freke in New Statesman

CommentThere is a mishmash of ideas contained in this article. It is not that Tom Freke’s main points about his experiences are completely wrong; it is just that by linking them to Adam Smith (high reader-recognition factor) and running quite separate trends together (plausible ‘hook-factor), Tom misses the point (unproven assertions factor) made by Smith and, perhaps, misleads his readers, who might think they speak with authority if, or when, they repeat a similar theme (bluff your way through business discussions temptation).

The full quotation from Wealth of Nations reads: "The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour" (WN I.i.1: p 13).

That “productivity in the economy increased rapidly” is true but whether this was solely associated with the fact that some “companies grew larger” and because of this, “workers' jobs became more specialised” is debateable. The famous ‘pin factory’ (from Diderot’s encyclopaedia 1755) employed less than 20 people, and Smith visited another one that employed only 10 people. Certainly, while Smith lived (1723-90), large factories (ironworks and potteries, etc.,) were rare; most were small and employed a few people. Most so-called ‘manufacturers’ were journeymen, tradesmen, weavers and such like, often employed in their own homes or taken to places where their skills were applied. And this pattern did not change much even at the height of the industrial revolution in mid-19th century.

Yes, there were large plants, which grew larger or founded large from their start, but the notion that large plants replaced small one is quite wrong. Many predicted the end of the small business and have done so successively over the decades. Monopolies and oligopolies notwithstanding, the small firm has survived and, in fact, is usually the largest source of employment. So, to assert that “in recent years the trend has been going the opposite way” is quite problematical. That more smaller firms have been started associated with technologies in information and such like is beyond question but this has been a continual and uninterrupted feature of market economies. Tom’s own experience exemplifies this trend. I happened before in engineering, particularly in mass production from bought-in components sourced in smaller firms. Of course, managements sometimes bring it all in-house, but they as quickly (or their successors) out-source it as quickly.

The division of labour, as envisaged by Smith was not just a micro-division of tasks (the pin-factory again) for he went on to describe later in the same chapter all the inter-sectoral divisions of labour involved in the manufacture of a common labourer’s ‘coarse woollen coat’. And this is, perhaps, in the advanced market society as important a source of productivity gains as micro-divisions of tasks. Commentators often miss this section because they do not get past the pin factory example.

The lesson Tom rehearses for small start-ups will strike a chord with all who have been there and done it. In fact, that is how the division of labour began in what Smith called ‘Rude’ society and has continued ever since. But even here, in a modern market economy, the single owner/manager/employee accesses the division of labour outside his firm. When Tom writes a letter it goes by post; or an e-mail it goes over the Internet; when he speaks to a customer he uses a phone, which is outsourced, of course, and when he banks cheques he uses an outsourced service. And so on.

The division of labour is ubiquitous, serving Tom and Microsoft, and the firms he supplies with bits of information, gleaned from outside sources. Smith was not out-of-date in what he wrote and lectured (1751-76) about the division of labour and nothing much has happened since to make his observations redundant.

Possibly a Correct Use of a Metaphor

I can just about let this reference to the invisible hand through on the ground that it is almost akin to Smith’s original (and only usage) of the metaphor in Wealth of Nations.

A new synthetic drug at great expense has entered the market, which promises good returns if it is adopted. So far it is not doing as well as envisaged but if they stick with it and usage picks up, for the drug and similar synthetics, the gains to the sector (and Roche in particular) from lower production costs using the new method generally will be good, and for patients the eventual costs will be lower than the previous drug processes.

In seeking their own gains, Roche causes changes from which other producers and users will benefit. The wider benefits were not part of Roche’s intentions, though the consequences of wider adoption of the process may have been noted beforehand and not excluded.“Fuzeon’s Fallout” by Derek Lowe in Corante: In the Pipeline (19 July) :

“Another two or three years should do it, if nothing better comes along to cut into Fuzeon sales. And stipulating that (which is no sure bet) Roche might be selling it for a long time to come, since the barrier to generic manufacture is going to be rather high. So, even after that wild factory in Colorado, they're still probably going to go into the black on Fuzeon, but it does make you wonder how the return compares to some of the other drugs in Roche's portfolio.But that's their problem. In the meantime, it looks like they've helped everyone else in the business by making industrial peptide synthesis more affordable. Adam Smith's invisible hand strikes again. . .”

Tuesday, July 18, 2006

Smith on Wealth and Free Markets

“New (or radical) liberals and private property anarchists affirm market success and government failure. Socialists affirm market failure and government success. Success at what? Success at creating value for individuals. Adam Smith called it the wealth of nations, but wealth is only a proxy measure of value and one that does not entirely get at the essentials of why free markets succeed.”CommentAn interesting viewpoint, but not quite accurate. Aside from Michael Rozeff’s quarrel with socialism and its pro-state solution to everything to do with what it call market failure (and precious few ideas it has about state-failures), of which I have nothing to say as I would probably agree with his general drift, I would question his all to easy assessment that Adam Smith’s ideas on wealth do “not entirely get at the essentials of why free markets succeed”.

Smith critiqued 18th century views that saw the solution to economic problems through the nation state and its success in focusing on ‘wealth’, i.e., the command of purchasing power by the state. He disagreed that the wealth of a society or a nation lay in the centralised control of economic resources by what were essentially ‘beggar my neighbour’ economic policies, fear of other nations becoming more economically successful and pursuit of aggressive foreign policies that began in wars and ended in empires.

He did not regard his definition of wealth – the annual produce of goods –as a ‘proxy’ (whatever that means) for ‘value’. His definition not only got to ‘the essentials of why free markets succeed’, but was inextricably bound up with that very issue. He looked, in detail, at the ‘barriers to opulence’, almost all of them involved in the malfunctioning of ‘free markets’ (‘natural liberty’ in his language) and added insights into how these malfunctions prevented markets succeeding (Book II, Wealth of Nations).

Where Matthew Rozeth gets his assertion from is not obvious. He used the ‘wealth of nations’ in his title because nations were the units with which his readers were familiar. His concepts were applicable at levels below that of nations – neighbourhoods even – and he could have titled his book the ‘Wealth of Neighbourhoods’ without losing his threads to the efficiencies of markets.

Monday, July 17, 2006

How to ask about 'happiness'

Suggested last week that Peter Singer asked different questions to whether people were happier with their high incomes today:

“Try different questions: a) ‘Would you prefer to have your living standards reduced to the equivalent of yourparents at your current age?’b) Would you prefer to have your living standards reduced to the equivalent of your great-parents at your current age?c) Would you prefer to have your living standards reduced to the equivalent of your great-grand-parents’ grand-parents at your current age?”

Peter Singer kindly replies:

“I think the questions you propose would be better if phrased as "would you prefer to live at the standards of your parents...etc"

"Reduced to" is bound to prejudice the answers.”

I am inclined to agree to his suggestions as long as the general point is clear. I have asked many audiences over many years whose members have expressed doubts about their current situations. My audiences have been from all income levels too. And the answers are almost unanimous. Nobody (but one) wants to ‘enjoy’ the happy days of their parents’ or grandparents’ income levels (except the person I mentioned in my posting below; and given the great success of his son who took over the family business ten years later, turning it into one of largest companies in the sector, with profits to match, I doubt if he would want to return to his father’s income levels and net worth).

So if Peter Singer will try the questions I recommended, as amended by him, and report the results, I am more than happy.

Smith's Legacy is More Important than Idle Chatter

Public debate about Adam Smith as a champion of either the Left or the Right continues, if only because one of the more prominent advocates of Smith as a honorary member of New Labour is Dr Gordon Brown, Chancellor of the Exchequer, and heir apparent to Tony Blair, the Prime Minister. William Rees-Mogg, unchallenged epitomiser of the British Establishment and as a former Editor of the House Journal of the same Establishment, The Times (London), urges (17 July) Brown to fight ‘now or never’ for his coronation.

William Keegan, in yesterday’s Observer (16 July) joined the debate. He wrote:

“There is plenty of material in both The Wealth of Nations and Theory of Moral Sentiments to rid Smith's reputation of its Thatcherite image, although as Dr Emma Rothschild pointed out in her Enlightenment lecture, Smith was 'an exceptionally circumspect and artful writer' who 'was prepared to confuse posterity, just as he confused his own public'. But he did think that there was such a thing as society - and he approved of progressive taxation.Smith might have lauded the 'invisible hand' - the 'butcher, the brewer or the baker' acting not from 'benevolence' but 'from their regard to their own interest' and 'the individual ... led by an invisible hand to promote an end which was no part of his intention'. Yet 'to feel much for others and little for ourselves ... to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature'.”CommentMrs Thatcher was quoting Hayek to the effect that the individual is responsible for his actions, not something called ‘society’, a wholly reasonable proposition at the level of abstraction of personal responsibility, but long since jumped on by the chattering classes as absurd (at different levels of abstraction). I do not believe that William Keegan entertains for a moment that the individual is not responsible for his actions and that if brought to book for manifest selfishness and criminal or bestial actions, it would be a valid defence to argue that it ‘was not me, guv, I was compelled by society to do ‘em harm’. But in columnist banter, cheap shot are, well, cheap, and, I note, Mrs Thatcher is not let off the hook for her personal responsibilities for her actions when in government.I am not letting William Keegan off the hook either, for his crass miss-statement that the so-called invisible hand (a metaphor taken from Shakespeare and Defoe) had anything to do with exchange behaviour with 'butchers, brewers and bakers'. Note how he runs two quite separate ideas together, no doubt under the excuse that this how conventional accounts of Adam Smith’s economics report his views. But conventional accounts do not represent Smith’s economics or his philosophy. The actions of self-interested driven individuals are as likely to cause harm to others (and to society) as positive benefits and leaving every action of self-interested behaviour unrestrained by the laws of society, by moral and ethical practices and beyond censure are absurd propositions that have no connection to Adam Smith, as the second paragraph from ‘Moral Sentiments’ demonstrates and which William Keegan blithely ignores (did sub-editors not read the passages together and at least ask the author for an explanation?).

He continues:

“If there is one economic contribution he popularised, and on which left and right seem to agree, it is the importance of the division of labour, long cited as 'the mainspring of economic growth', not to say the justification for free trade and what is now known as 'globalisation'.

But JK Galbraith pointed out in A History of Economics: 'That the application of power and machinery to production, even in Smith's day, might have been a far greater source of efficiency than the specialised application of workers to a task is more probable ... To thisday, nonetheless, Smith's division of labour remains a totemic source of efficiency, a cliche in all discussion of international trade policy.'

Needless to say, as this concept was being discussed at last week's seminar, I could not help thinking of another division of labour - the division within the Labour Party itself. But that is another story.”

CommentThe significance for Smith of the division of labour was not an abstract discussion about the division of tasks within a multi-task process, as in his report of Diderot’s pin factory plus the separate one that Smith visited (Chapter 1, Wealth of Nations) and Galbraith’s ‘application of power and machinery to production’, which incidentally ‘even in Smith's day’ could be said to be almost non-existent – power-driven machinery featured largely in the late 18th and 19th century, not the early 18th century.

The division of labour was of crucial significance to Smith even as the ‘rude’ (‘savage’) society of the Hunters was slowly transforming, to be followed by the Shepherds and Agricultural stages, long before the Age of Commerce of Classical Greece and Rome (see Wealth of Nations and Lectures in Jurisprudence), not to mention ‘free trade’ and ‘globalisation’. This is spelled out clearly in Chapter 2 of Wealth of Nations, where it is linked to the propensity to ‘truck, barter and exchange’.

The Division of Labour is a consequence of the propensity to exchange, not its progenitor. Power-driven machinery appeared many millennia after the original division of labour from technology unavailable in primitive society. The whole point about development today is that instead of awaiting (so to speak) the example of technology, modern markets, and highly complex and refined divisions of labour, and the concomitant benefits of allowing these forces to drive economies, all underdeveloped societies have available to them the option of leaping over the millennia time-tables experienced by the developed countries by choosing to link themselves to what already exists. China and India has chosen this path with visible results.

If this truth is repeated to the point of being a mere ‘icon’, that is a small price to pay for actively doing something about it. This linking process has severe ‘adjustment costs’ both for developing countries and for developed countries, but none of these costs are unmanageable or unpalatable, but neither are they easy to bear. The route is clear; the choice compelling, and opposition to both is, well, absurd, not to say downright sad.

It does not matter whether Left or Right claims Adam Smith’s legacy. What does matter is that they understand it. Against this challenge the ‘divisions in the Labour Party’ are trivial tittle-tattle.

Friday, July 14, 2006

A 'happiness' Test that Really Tests

“Of course, there is nothing new in the idea that money does not buy happiness. Many religions instruct us that attachment to material possessions makes us unhappy. The Beatles reminded us that money can’t buy us love. Even Adam Smith, who told us that it is not from the butcher’s benevolence that we get our dinner, but from his regard for his self-interest, described the imagined pleasures of wealth as "a deception" (though one that "rouses and keeps in continual motion the industry of mankind").”

From ‘Happiness, money and giving it away’ by Peter Singer, Professor of Bioethics, Princeton University in New Straits Times, Malaysia, 14 July.

CommentIt seems to me that judging a state of happiness by questionnaires about how ‘happy’ people feel is likely to be misleading. Answers may be conditioned by how discontented they are with their current state compared to some future state they imagine theybcould be in.

Try different questions: a) ‘Would you prefer to have your living standards reduced to the equivalent of yourparents at your current age?’

b) Would you prefer to have your living standards reduced to the equivalent of your great-parents at your current age?

c) Would you prefer to have your living standards reduced to the equivalent of your great-grand-parents’ grand-parents at your current age?

I have only met with one positive response to these questions . It was from a man whose parents were highly successful business people and the company under his charge was less successful, and he reckoned that his net-worth, compared to theirs, was about a quarter.

Smith was a frugal person, living on a life pension of £300 per year, upon which he retired aged 43 in 1766, and which trebled to £900 a year with a ‘part-time’ job (though he worked practically full-time) as a Scottish Commissioner of Customs in 1778 to a few weeks before he died in 1790.

His household contained his mother (to 1784), his cousin, Jane (to 1788) and his heir, David Douglas (son of another cousin, Colonel Robert Douglas). He entertained fellow philosophers, advocates, writers and literary visitors, regularly until the week he died, and also gave most of his income away to indigent relatives.

As a philosopher he regarded his role to ‘do nothing, but observe everything’ and it is not surprising that he considered ambition to succeed in business ventures and ‘society’ as an illusion. But he also understood that such illusionary motivations helped society to progress and to create opportunities for the common labourers and their families to move towards opulence, which ‘common humanity’ wished for them. Living in hovels, shoeless and wearing rags did not for happiness make, except for a deluded minority of strong-willed stoics, of which I am sure there were precious few in a Scottish winter (and, I suspect, not many more, near naked on the shores of the Mediterranean).

Thursday, July 13, 2006

Calm Down: Adam Smith was not a Socialist

People over at the Adam Smith Institute are slowly working themselves into a bit of a tizzy because Gordon Brown and others (the latest is Professor Ian MacLean, though I cannot comment on his new book because the one I pre-ordered has not yet arrived) have claimed that Adam Smith was sort of a proto-socialist, even a socialist, or specifically a supporter of New Labour.

Now the evidence for this view, or fear, that I have seen so far is somewhat flimsy. It certainly is not well founded in what Smith wrote in respect of his social-evolutionary model of commercial society.

True, you can find quotations here and there which show he had (justifiable) sympathy for the plight of the common labourer and his family, and it is possible to work these quotations up into something akin to the sympathy that Labour politicians claim to feel for the poorer members of modern society today. But that is a long, long way from finding in Smith’s corpus a coherent or parallel model of what passes for socialism, steps towards socialism, or socialist planning, or anything remotely like it.

I am not sure that any of this language applies to Smith, unless you take an extreme view of ideas and see the slightest budge from pure libertarianism as an imminent collapse into collectivisation, state control of markets and such like. Authoritarian measures by governments (identity cards, detention for prolonged periods of 28 or 90 days, trials without juries, and electoral expenses by ‘fiddles’/blurring of rules, etc.,) are not monopolised by the so-called left – they are shared by all strains of the political spectrum, and must be watched suspiciously accordingly.

From what I can see, Brown is simply tweaking the beards of conservative minded opinion, claiming a conservative icon as a supporter to New Labour, without any serious claim to reality, and he is enjoying the discomfort of, among others, the Adam Smith Institute, who should know enough about Adam Smith (and do!) not to take these shallow claims seriously. He is also giving his future policies a ‘socialist’ glean to make them palatable to his leftwing cohorts.

Smith cannot be fitted into a modern political spectrum – it is extremely difficult to fit him into the 18th century spectrum (see Donald Winch’s “Adam Smith’s Politics”) – because he was apolitical. His perspective, looking backwards over two millennia and seeing what governments had managed to do to hold back the natural progress to opulence by their interventions, myths, beliefs and policies, gave him, I think a wholly estranged view of the possibilities likely from politics. He saw his task was to observe and understand the impediments to the creation of wealth, to present this to his readers and listeners and leave it to them what they made of it. He had no doubts that his comprehensive, detailed (exhaustively so!) and historically sound analysis covered the keys to enhancing what was naturally a slow and gradual progress towards opulence in conditions of perfect liberty (not laissez faire!).

He did not believe that everything could be left to the so-called metaphor of the invisible hand, and certainly not a visible one. He well understood that self-interest could well be malign as well as benign (he discusses more of the former examples to the single instance he gave of the latter). His examples of government-funded infrastructure were accompanied by a very vague 'solution' to the perennial problem of whether they should be managed by state or private commissioners; neither ‘solution’ appears to be clear-cut. He preferred to try both and then decide.

That is the stuff of politics. Parties, and leaders within them, have pre-set answers to every problem, and as governments, or leaders change, alternative solutions are tried. The high costs of this trial, fail, try again, and fail again, are the price paid for our system of government. What works once, also fails in due course and must be replaced, and the cycle begins over. Smith stood aside from all this; he advised governments and ministers in them, privately. He never went public on what they said in reply, or what they did with his suggestions.

Hence, Gordon Brown can claim what he likes about Smith – in general, only, of course – and he can read what he likes into his texts. Smithian scholars know better than to get to excited about his, or any other politician’s claims. Like Smith they observe and analyse, make suggestions and give advice if asked.

P. J. O'Rourke on Moral Sentiments - an excellent review

P. J. O’Rourke reviews Adam Smith’s ‘Theory of Moral Sentiments’, his first and less well-known book compared to his second and last, ‘Wealth of Nations’, and what a cracking good review it is (brought to my attention by Tim Worstall today on his Blog which is never short of good writing: http://timworstall.typepad.com/timworstall/).

I found much in the review about Smith with which I agree (a few quibbles too, but nothing major). If P. J. O’Rourke is a typical reader, Smithian studies are moving into good shape. Indeed, the position regarding understanding of Smith’s legacy is a lot better than it was some years ago. The drip-drip affect of good books on Adam Smith recently, and wider reading of his books too, is breaking down the old consensus around the ‘Chicago’ Adam Smith and restoring the ‘Kirkcaldy’ Adam Smith in its place. ‘Economic Man’ heads towards retirement.

O’Rourke writes: ‘His secret was to be an idealist without taking that impertinent and annoying step of being a visionary.’

Smith took the long view, backwards not forwards. He was interested in what the past showed of the full range of what human society to be capable off. Not all of those who walked the earth before the 18th century were deliberately malign; many were unintentionally malign, because of the unintentional outcomes they brought about under the illusion that they were doing the ‘right thing’.

This is why Smith did not have a general law that if people followed their self-interest it would always work for the benefit of society (the so-called ‘invisible hand’). It could easily, and often more regularly did, work out bad for society. It depended on what they chose to do. But what they did, even when bad, only delayed the possibility of opulence, sometimes reversing it as the detritus of past civilisations shows, but so far it has not destroyed the prospect of that long-term outcome somewhere on planet earth. Human propensities in a positive direction run too deep for that to happen (‘there is a lot of ruin in a nation’).

Not being a visionary meant that Smith was not in a hurry, so to speak. He was not animated by the sense of urgency so often found in ‘men of system’. He cast the role of philosopher to ‘do nothing, but observe everything’, in contrast to the fanaticism of Marx which led him to think he should ‘change the world, and in the event, for the worse.

O’Rourke brings to his review a memorable sense of his biting humour (and allusions to contemporary Americanisms that this Brit does not quite follow). He quotes Smith on ‘the vilest and most abject of all states, a complete insensibility to honour and infamy, to vice and virtue’ and offers a typical devastating aside: ‘It is a state that Smith might also have described as “running for political office” ’! Can one ever get too much of such O’Rourke-isms?

I recommend you read O’Rourke’s review (in The Weekly Standard at http://www.weeklystandard.com/Content/Public/Articles/000/000/012/401ngehx.asp?pg=1) of Smith’s ‘Theory of Moral Sentiments’.

Better still read the review and the book: 'Theory of Moral Sentiments' from Cambridge University Press, 446 pages, $70 from Amazon

Inane Development Policies in the Killing Fields

Adam Smith on an episode of fallacious policies for agricultural improvements in a poor country:

“The kings of Spain have also done all in their power to promote the improvement of land. Philip IVth went to the plow himself in order to sett the fashion. He did every thing for the farmers except bringing them a good market. He conferred tittles of nobility upon several farmers. He very absurdly endeavoured to oppress manufacturers with heavy taxes and fines in order to force them to the country. He thought that in proportion as the inhabitants of towns became more numerous, these in the country decreased. This notion was highly ridiculous, for the populousness of a town is the very cause of the populousness of the country, because it gives greater encouragement to industry. Every man in a town must be fed by another in the country, and it is always a sign that the country is improving when men go to town. There are no parts of the country so well inhabited nor so well cultivated as those which lye in the neighbourhood of populous cities.”

CommentReading this passage this morning, I could not help but think of the lunacies of Pol Pot and his henchmen, all educated at the best of French Universities, who returned to Cambodia, formed the Khymer Rouge (communists), took power and forever will be remembered for their more than ridiculous policy of genocide by destroying towns, and emptying them of people (killing those who wouldn’t go and starving those who did). All in pursuit of an ideological objective, honed by their interpretation of Marxism.Beside them, Philip IV, without benefit of modern, or any philosophy, appears in history as a pathetic fool, who limited his nonsense to imposing taxes, whereas the educated Pol Pot delegated a murderous crew of psychopaths to use bullets to clear Cambodia’s towns and villages of the people who could contribute to the development of the country.

Henry Clay-Ruark Speaks Up for the Kirkcaldy Adam Smith

I had to read it several times, literally, before getting its drift. It attacks distortions of Adam Smith on the invisible hand, typified with its opening paragraph:

“Famed for his “invisible hand” concept creating “great good out of much greed”, Adam Smith has been the mighty mogul of “free-market” economics ever since 1776.”

But as it does not say so until much later, it could be taken as if this was Smith’s position (he never supported greed or suggested it was part of commercial transactions). The convictions in the Enron case were the antipathy of a Smithian free-market as Henry Clay-Ruark recognises.

Further down the page Henry Clay-Ruark presents his correction to the above misinterpretation of Smith’s actual views:“Shaping trades into sales into solid satisfactions for everyone, while making sure neither seller nor buyer gets badly bruised, is neither simple nor easy.

Smith built in extremely essential operational-steps for profound protections --malignly misinterpreted, denied-and-defied ever since, especially by corporate corruption caused by manager dereliction to pay off personal interests vs rapidly-separated ownership.Smith’s first work was “The Theory of Moral Sentiments”; he lays out moral and religious-derived assertions which surround and sometimes overwhelm statements made in “The Wealth of Nations”.

His unmistakable emphasis is on very conscientious care and concern, with a striking cooperative approach to action for the best interests of all concerned -- a fundamental departure from the rough-world cut-throat competition of “Wealth”.

CommentThat is absolutely correct, as I have been showing on Lost Legacy for over a year now, and I congratulate Henry-Clay-Ruark for spreading the truth about Adam Smith’s concept of markets and rejecting false attributions to him of views he never held.

There are many instances in Smith’s works showing that self-interest that drives people’s behaviour can have malign outcomes.

Let me quote from my own draft ms for the Great Thinkers in Economics series (2007) for Palgrave Macmillan on this very subject:

“As usual, Smith comes at the subject via an historical account to highlight the role of stock in the early accumulation of capital needed for the rapid development of commerce, a process which he finds retarded by the interventions of prejudice, malfeasance and lack of probity among many people who, out of ignorance, acted unintentionally or otherwise against the public benefit.

I am pleased that the good readers of Salem-News.com are given the opportunity to read about the real Adam Smith from Kirkcaldy in Scotland instead of the fictitious Adam Smith, claimed famously by George Stigler to be ‘alive and well in Chicago’.

Tuesday, July 11, 2006

Misreading Adam Smith: a footnote to a podcast

“Much of the most powerful ideas of economics are unchanged since Adam Smith. So there is always going to be a tendency for the younger members of the profession to look for ways to be distinctive and marketable. That makes new niches for publication particularly attractive.”

CommentNot having heard what was said to justify this statement, or what were its implications, I cannot comment either in agreement or disagreement. A later comment in the extract points to a perennial problem in economics between its ‘hard science’ ethos and its abhorrence of ‘soft’ explanatory power for the world we live in:

“Later in the podcast, Becker dismisses the idea that "everything had been figured out" and all the easy problems had already been solved. He's surely right that there is plenty left to do in economics. But I wonder how the field is shaped because of the difference between the social sciences and the physical sciences. In the physical sciences, technology helps make measurement more accurate or possible where it was impossible before. Other than neuroeconomics, there isn't much of a role for technology in making measurement more powerful or opening up new areas for research. If anything, cheap computing power has made empirical research less reliable (JSTOR subscription required) because it has made searching for a statistically significant result easier.”CommentThe latter distinguished Smith’s work; Wealth of Nations was an inquiry into what caused wealth to be created, as well as the nature of wealth. It was decidedly empirical in method – exhaustively so, according to many people, who complain of the digressions and repetition – and used such a wide range of data, the seemingly trivial and the profound (which had more to do with the paucity of research libraries, no research assistants, and his relative isolation while writing), that readers miss for whom Smith was writing, which certainly did not include posterity.

I recently concluded a close reading of Book I and among other things I reviewed was what he had written on his so-called ‘labour theory of value’. Now this is decidedly not one of his ‘powerful ideas’ as commonly interpreted (see Rothbard, Schumpeter and Douglas articles blasting Smith, largely based on their misreading of what Smith actually wrote).

Thus, when Greg Ransom at PrestoPundit laments the likely attitude of the ‘hard science’ people in economics, broadly summed up by: “At a theoretical level Darwinian biology has a similar problem — most of the intellectual work is done, and the only real need left is to improve the model conceptually but unfortunately conceptual work looks more like “philosophy” than “hard science”, I am inclined to agree with him because I know what he means (and, I suspect most economists do too).

But I cannot help noting that within the errors of misreading Smith’s so-called labour theory of value (he didn’t have one, except for the ‘rude’ society of Hunters before the emergence of agriculture), lies a very powerful idea totally missed by almost the entire profession of ‘hard science’ obsessives, who make up the majority of the profession today, especially among the young trying to make a name for themselves, under the very visible hand (if I may say so) of the rules of publication. I refer to the almost total neglect of Smith’s role of ‘truck, barter, and exchange’ in the social evolution of wealth creation, which had little to do with the redundant concept of labour as the sole source of value once humans, or at least a large minority of them, left hunting (and gathering) as the sole mode of sustenance.

Somehow, I think the false dichotomy between ‘hard science’ and, presumably, ‘soft science’ has just taken a knock on the head. But then, only a Smithian would notice this.

Seems to me, an inability to see a ‘powerful idea’ staring them on the page of a book over 200 years old does not suggest that ‘hard’ science deserves much credit, and in context, nor does it suggest that some noisy critics of Adam Smith, who found him ‘guilty’ of something he did not commit, and those who quote them with gusto, have all that much to be smug about.

Sunday, July 09, 2006

First Comment on 'Attachment Theory'

Last night (French time) I posted a response to the comment on my previous post on 'attachment theory'. For some reason the counter this morning (8.30am) does not register it, but the comment is posted on it. To avert anybody concluding I ignore comments - there are almost none usually so they all get my close attention! - I repost my response here:Gavin Kennedy said...Thank you for the reference, I will look it up and may comment.I would like to make clear that 'economic man' has not connection with Adam Smith's moral philosophy or his political economy. That is an ascription added to his name in the 19th -20th century - what Jerry Evenski calls 'Chicago Adam Smith' in contrast to 'Kirkcaldy Adam Smith' (Adam Smiths Moral Philosophy', Cambridge 2005).An economic socio-path would not have managed to exercise the propensity to 'truck, barter and trade' in Chapter 2 of Wealth of Nations.I am not averse to 'attachment theory' - I just had not heard of it and was being honest about my ignorance.I'll get back after I've read some references.10:18 PM

Saturday, July 08, 2006

Smith on Human Happiness

‘More than a feel good solution’ by David Brooks

“Attachment theory has been thriving for decades, but it's had little impact on public policy. That's because the policy world is a supermagnet for people who are emotionally avoidant. If you go to a congressional hearing and talk demography, you are treated like a serious policy wonk, but if you start talking about relationships, people look at you as if you're Oprah.But everything we're learning about the brain confirms the centrality of attachments to human development and the wisdom of Adam Smith's observation that the "chief part of human happiness arises from the consciousness of being beloved." (Brain research rarely reveals anything new about human nature; it just tells you which of the old verities are most important.) And so maybe it's time to focus a little less on individual capacities and more on nurturing attachment.”

(Starnewsonline.com: ‘the voice of Southeastern North Carolina’’ 5 July by David Brooks, also a columinst for New York Times)

CommentWell it makes a change from quoting Smith as the Icon of the 'invisible hand' (which he wasn’t) and ‘father of capitalism’ (which he wasn’t either). Smith was a Moral Philosopher, which in his day in mid-18th-century Scotland incorporated in its corpus of knowledge what was called ‘police’, later political economy. His special interest was in the revival of commercial society after the long interregnum of barbarism and feudalism that followed the Fall of Rome. He saw commerce as the road to opulence; he had no conception of what lay ahead after that.

So if ‘attachment theory’ (whatever that is) promotes wider interest in Smith’s ‘Theory of Moral Sentiments’, then I for one am pleased to welcome it.That the Starnewsonline.com, on the compass bearing of ‘southeastern north Carolina’ (‘east by north’?) has a syndicated article from the lofty New York Times by a columnist who mentions Smith on moral philosophy, I find encouraging. I hope his readers are prompted to read more of Smith’s rich contributions in his other Works.

Friday, July 07, 2006

Which Edition of Wealth of Nations Do you Use?

Sandra Peart carries a piece on her always good value (but, alas, too infrequently posted – she is an extremely busy teacher and researcher) Blog: ‘Adam Smith Lives!’ that reports on a question asked by Doug Mackenzie (sorry, I do not know of this gentleman): 'which edition of Wealth of Nations works best for an undergrad class?'

Sandra plumps for The Liberty Fund reprint of the Oxford edition (aka: Glasgow Edition of the Works and Correspondence of Adam Smith)

CommentI always recommend the Liberty Fund edition – well within a student’s budget (buy online from Liberty or Amazon or AbeBooks) and likewise to induce sceptical academics to read the man they quote from).

I prefer the full set of Wealth of Nations, not abridgements, which can be selectively misleading (e.g., Heilbroner). Reading beyond the famous quotations into his many so-called diversions reveals his method of using actual data available to him to demonstrate points he is making can be enlivening to the curious and stimulating to the 'expert'.

The other edition I use regularly – just to check footnote about what other editors may have missed - is Edwin Cannan’s New York edition (1937), which until the Oxford edition appeared was the main text used by of Smith scholars, judging by their abundant references to it in books and articles. Cannan found and edited the 1895 edition of 'Lectures in Jurisprudence' (now LJ(B)) and had unrivalled knowledge of Smith’s works – and often critical he was too, e.g., Cannan, E. Theories of Production and Distribution, 1893, 3rd edition 1924.

Sandra Peart also recommends that Wealth of Nations (WON) be taught along with some reading of Smith’s 'Theory of Moral Sentiments'. I agree, but undergraduate teaching agendas are usually already crowded with things to read and, unlike Sandra, most economics lecturers are ill equipped to add Moral Sentiments to their lectures (if they were taught by their tutors the ‘Chicago’ Smith and not the ‘Kirkcaldy’ Smith they are also probably ill-equipped to teach WON – though this situation is slowly changing as renewed interest in reading Smith for themselves spreads).Read the piece at: http://adamsmithlives.blogs.com/thoughts/ (and if you do not know of her Blog, search the archives too.